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BT’s landline-only customers set for cheaper bills

Ofcom plans to cut bills by at least £5 a month for BT customers that have only a landline

Landline-only customers are often elderly or vulnerable, unlikely to switch

Plans would return telephone line rental prices to 2009 levels

More than two million people who buy only a landline telephone service from BT would see their monthly bills cut by at least £5 per month, under plans announced by Ofcom today .

Ofcom has reviewed how the market is working for customers who buy only a landline service from a provider – either because they do not want broadband or pay TV, or because they take these services under separate contracts, usually from different companies.

We have found that these customers – often elderly or vulnerable people who have remained with the same landline provider for decades – are getting poor value for money in a market that is not serving them well enough.1

Landline-only customers are particularly affected by price hikes in telephone line rental. Major providers have increased their line rental charges significantly in recent years – by between 25% and 49% in real terms. This is despite providers benefiting from around a 26% fall in the underlying wholesale cost of providing a landline service (see chart).

So Ofcom intends to give customers with standalone landline contracts additional protection by cutting the cost of BT’s line rental by at least £5 per month – or £60 per year.2

This would mean that BT customers with only a landline, who currently pay £18.99 per month for line rental, would pay no more than £13.99 – a reduction of at least 26%.3

The cut would return the cost of line rental to 2009 levels in real terms, effectively reversing price hikes for landline-only customers.

We are also proposing safeguards to prevent BT from making future increases to line rental and landline call costs by more than inflation.4

Sharon White, Ofcom Chief Executive, said: “Line rental has been going up, even as providers’ costs come down. This hurts people who rely on their landline the most, and are less likely to shop around for a better deal. We think that’s unacceptable.

“So we plan to cut BT’s charge for customers who take only a landline, to ensure that vulnerable customers get the value they deserve.”

Missing out on competition

By contrast, offers for landline-only customers have become increasingly limited, with a number of providers withdrawing their telephone-only products altogether.

Almost 80% (2.3m) of the UK’s 2.9m landline-only customers are with BT. Ofcom has found that BT’s market power has allowed it to increase prices without much risk of losing customers. Other providers have then followed BT’s pricing lead.

We expect that our proposed cut in BT’s prices would lead to other providers following suit and reducing theirs. This would mean savings for landline-only customers across the market.

Ensuring value for money

Ofcom is proposing, and seeking views on, a range of £5-£7 per month for the cut to BT’s landline-only line rental. We will take into account the need to protect consumers, while also preserving competition and ensuring that competitors to BT can profitably attract new customers.

Ofcom also intends to require BT to trial different approaches for communicating with its landline-only customers. This is to help them better understand what they are paying, and how other BT packages – or even other providers – might offer better value for money.

ENDS

NOTES TO EDITORS

On average, landline-only customers have been with their provider for more than 20 years, compared to eight years for phone with broadband customers, and four years for triple-play customers. 43% of customers with a standalone landline contract are 75 or over, while 35% live in DE households on the socio-economic scale. Furthermore, 70% of landline-only customers have never switched provider, or considered doing so.

2.The planned price cut would not apply to landline services sold by BT Consumer as part of a bundle of services including broadband.

3.Line rental saver customers benefit from a 10% discount by paying for their annual line rental upfront. Currently the upfront price paid, including the discount, is £205.08. We propose to set a revised price for BT’s discounted line rental saver product. Customers would get 10% off the annual cost of the new lower-price line-rental decided by Ofcom. (To illustrate: should we reduce BT’s line rental by £5 to £13.99 per month, the annual cost to customers would be £167.88. For people who pay for line rental upfront, the 10% discount would be applied, reducing the price to £151.09.)

4. These proposed safeguards would cover the line rental, call charges and the call package add-ons. BT would be permitted to increase revenue for these service by no more than the Consumer Price Index (after the one-off reduction in line rental has been applied). In addition, we are proposing a specific control on the line rental charge, that would ensure BT could not increase this charge significantly more than inflation.

Ofcom publishes information to help landline customers choose the right tariff to match their use. This includes information on the low-cost services available for customers in receipt of certain state benefits. Guidance on switching landline is also available.